A recent Auckland District Court decision, Commerce Commission v TMG Asia Pacific Pty Ltd, has highlighted the need for adequate disclosure of material Terms and Conditions in advertising.
TMG Asia Pacific Pty Ltd (TMG) ran a series of “text to win” trivia competitions in New Zealand between July 2006 and January 2007. The competitions were promoted through television advertising on the majority of New Zealand’s free to air channels. However, the advertising failed to disclose that by sending a text message to answer the initial question in the television commercial, participants were entering into a premium SMS subscription service. This meant they would receive five text messages per month charged at $3 per message, altogether amounting to a cost of $15 a month until the recipient opted out. Many consumers were unaware that by entering the competition they were also subscribing to this ongoing service and complained to the Commerce Commission. After being notified they were under investigation, TMG voluntarily stopped broadcasting its advertising and operating its competitions. It then issued out two rounds of refunds to affected consumers.
Despite this corrective action, the Commerce Commission brought proceedings against TMG under the Fair Trading Act (FTA). The FTA prohibits misleading conduct in trade and specifically false or misleading representations in respect of the price of any goods or services. Representations concerning price are considered in context to determine whether they are false or misleading, highlighting the need for full disclosure of all relevant information. By failing to disclose to the consumer they were effectively signing up for a premium SMS subscription service and the true cost of the service, TMG was found to be in breach of the FTA. Consequently, it was fined $125,000 and ordered to pay court costs.
The case demonstrates that material terms should be fully disclosed on advertising, and that such information needs to be unambiguous, and prominently displayed so as not to escape attention. Given the serious consequences of a breach of the FTA, the case also brings to light broader principles advertisers should be aware of if they are to comply with New Zealand consumer protection legislation, including:
- Every promotion will require unambiguous Terms and Conditions.
- Consumers should be aware of where the full Terms and Conditions can be found.
- Statements cannot be false or misleading. Some representations may be literally true but in fact lead consumers to believe something that is an error. For example, the terms “free”, “valued at” and “worth” have often been interpreted as being misleading in certain contexts. Caution is needed when making comparisons with normal selling prices, competitor’s prices, or retail prices. Similarly, any accessories that are advertised with the item but not included in the price, should be indicated in the advertisement. Statements about GST, interest and additional charges should also be clear.
- The Terms and Conditions need to make sense to the average consumer.
- The Terms and Conditions of the promotion need to be consistent with any advertising or point of sale promoting the promotion.
Getting it wrong will have more than just financial implications for advertisers such as TMG, including:
- Impacting on the company’s corporate reputation.
- Damage to brand reputation and value.
- Potential for criminal liability under the FTA. The company, the advertiser and the advertising agents may all be liable under the FTA.
The salutory lesson is that businesses operating in New Zealand should always seek independent advice when planning their promotions or advertising campaigns to make certain they comply with all the relevant New Zealand legislation.